Roundup: Malaysian PM unveils 2007 budget

Malaysian Prime Minister Abdullah Ahmad Badawi on Friday unveiled the 2007 Budget, announcing a package of new measures to boost the economic development and sharpen the national competitive edge.

"The theme of the 2007 Budget is Implementing the National Mission Towards Achieving the National Vision. This Budget is an action plan to spearhead the implementation of the National Mission towards realizing Vision 2020 (when Malaysia will become a developed nation)," said Badawi in a televised speech at the parliament.

To soften the impact of slower global growth on the Malaysian economy, the government will adopt an "expansionary fiscal policy " in the 2007 Budget and implement new measures to further stimulate the activities of the private sector, said Badawi, who is also Finance Minister.

BUDGET ALLOCATION

The prime minister proposed an amount of 159.4 billion ringgit (43.08 billion U.S. dollars) to be appropriated in the 2007 Budget.

Of the amount, a sum of 112.9 billion ringgit (30.51 billion U. S. dollars) is allocated for Operating Expenditures, reflecting an increase of 11.6 percent year-on-year, and 46.5 billion ringgit ( 12.56 billion U.S. dollars) for Development Expenditure, an increase of 31 percent.

In the proposed Development Expenditure, the largest allocation of 20.8 billion ringgit (5.62 billion U.S dollars) is for the economic sector, which comprises agriculture, industry and infrastructure.

A sum of 14.2 billion ringgit (3.84 billion U.S. dollars) is allocated for the social sector, including education, health and housing.

The security sector is allocated 6.8 billion ringgit (1.84 billion U.S. dollars) while 2.7 billion ringgit (729.73 million U. S. dollars is for general administration and 2 billion ringgit ( 540.54 million U.S dollars) is for contingency reserve.

Meanwhile, the prime minister expected the federal government revenue to increase by 11.8 percent, nearly 40 percent of which is petroleum-related revenues. This significant increase enables the federal government to undertake an expansionary fiscal policy to support domestic economic activities, while reducing the budget deficit to a more sustainable level of 3.4 percent of GDP in 2007.

PRIVATE SECTOR AS ENGINE OF ECONOMIC DEVELOPMENT

"The private sector must continue to be the catalyst and spearhead the nation's economic growth. The government is committed to provide a conducive environment to spur greater dynamism in private sector activities," said Badawi.

To promote greater private sector investment, the government will reduce the corporate tax rate by 2 percentage points in two stages.

The corporate tax rate will be reduced to 27 percent in the year 2007 and then further reduced to 26 percent in 2008.

In addition, the government has reviewed several incentives and taxes to improve existing incentives and reduce the cost of doing business in Malaysia.

In this regard, venture capital companies, investing at least 50 percent of their investment funds in seed capital, will be given income tax exemption for 10 years. Also, the basis of determining the penalty on withholding tax should be amended from total payment to that of withholding tax not paid.

Meanwhile, the government will simply and clarify tax guidelines to ensure an efficient system of tax administration.

HIGHLIGHT VALUE-ADDED INDUSTRIES

"The government will continue to emphasize the utilization of technology and the development of high value-added industries," said Badawi, adding sectors such as information and communication technology (ICT), biotechnology, modern agriculture, halal industry, tourism and Islamic finance, will be further developed.

For the agricultural sector, which needs to be transformed into a modern, commercial and competitive sector, the government has allocated 3.6 billion ringgit (972.29 million U.S. dollars) in the 2007 Budget, particularly to increase productivity and efficiency in agricultural production and expanding marketing capacities.

The biotechnology sector attracts an allocation of 210 million ringgit (56.75 million U.S. dollars) in the 2007 Budget.

The government has established Inno Bio Ventures to invest and provide training in biotechnology. The Bio Innovation Center in Nilai, Negeri Sembilan state, will be set up to provide site facilities and equipment for new biotechnology companies to undertake commercialization and bio-manufacturing activities.

To encourage new investment, the government proposes several incentives and enhances existing ones.

First, bionexus companies will be given income tax exemption for 10 years, beginning from the first year the company is profitable. After the expiry of the 10 year exemption period, a bionexus company will be taxed at a concessionary rate of 20 percent for another 10 years.

Given the country's potential to spearhead the halal industry, the Halal Industry Development Corporation will be established under the Prime Minister's Department with a launching grant of 25 million ringgit (6.75 million U.S. dollars), whose function is to coordinate and ensure the integrated and comprehensive development of the industry.

The Malaysian International Halal Showcase and the World Halal Forum which was inaugurated this May, will become annual events.

More halal parks will be set up while the Small and Medium Enterprise Bank will offer funds to finance entrepreneurs to develop these products.

As for the ICT, the government will continue to accelerate the growth of the Multimedia Super Corridor and make more efforts to promote shared services and outsourcing.

In terms of Islamic financial services, the government will take more incentive measures to build Malaysia into a leading international financial center.

Among a series of measures, income tax exemption for 10 years will be given to all Islamic Banking that conduct their business in foreign currencies and are licensed under the Islamic under Banking Act 1983. Also, income tax exemption for 10 years should be given to local and foreign fund managers, who manage Islamic funds for foreign investors.

ECONOMIC FORECAST

The Malaysian prime minister said the Gross Domestic Product ( GDP) is estimated to grow by 5.8 percent in 2006 and increase by 6 percent in 2007.

In the year 2006, private investment is expected to increase by 10.1 percent while private consumption remains resilient at 7.1 percent.

Growth in private sector activities is supported by robust domestic demand, reflected by strong performance of the manufacturing sector, which is to increase by 7.3 percent, and the growth of the service sectors, which is to remain strong at 5.7 percent, said the prime minister.

As for the year 2007, GDP is projected to increase by 6 percent, with private investment expected to expand by 10.5 percent and public investment to grow by 8 percent, said Badawi.

The manufacturing sector will continue to record strong growth of 6.8 percent while the services sector, including ICT, tourism and education, is projected to increase by 6 percent. The agriculture sector is anticipated to grow by 4.7 percent, while the construction sector will further expand by 3.7 percent in 2007.

OTHER MEASURES

Badawi said that various measures will be taken to bridge the regional development gap and improve the living standard of the Malaysian people in various fields.

Starting from the year 2007, all government school examination fees will be scraped, and the government will help the 31,000 unemployed graduates in the country to find jobs and offer more scholarships for bright students.

To enable Malaysian citizens to have better access to health services, the government has allocated 10 billion ringgit (2.7 billion U.S. dollars) for the provision of health facilities and equipment, services of specialists and training programs.

In efforts to promote a healthy lifestyle, the specific exercise duty on cigarettes and liquor will be raised with a small margin, said Badawi.

Meanwhile, to encourage women to take mammogram tests, they will be given a subsidy of 50 ringgit (13.51 U.S. dollars) for every test done in private clinics and hospitals, which represent an appropriately 50 percent of the cost of mammogram.

Local analysts have welcomed the 2007 Budget as business- friendly and people-friendly. Friday's stock market also responded positively to those measures announced in the speech.

Source: Xinhua